IRS Letter 525 – How to Handle a Post IRS Audit Notice

Receiving a notice from the Internal Revenue Service (IRS) can be an intimidating experience. One such notice, IRS Letter 525, also known as the "General 30-Day Letter," is a critical communication that requires careful attention and a timely response. This article provides a comprehensive overview of IRS Letter 525, explaining what it is, why you might receive it, and the steps you should take after it arrives in your mailbox. 

What is IRS Letter 525? 

IRS Letter 525 is a formal notice sent to a taxpayer after the IRS has conducted an examination, or audit, of their tax return and has proposed changes that will result in a change to their tax liability. It is not a bill, but rather a proposal of adjustments. This letter is typically issued following a correspondence audit, where the examination was conducted by mail.  

The primary purpose of Letter 525 is to inform you of the proposed changes and to provide you with a 30-day window to respond. This 30-day period is a crucial opportunity for you to either agree with the proposed adjustments or to present your case if you disagree. 

Why Did I Receive Letter 525? 

You will receive a Letter 525 because the IRS has completed an examination of your tax return and has determined that adjustments are necessary. This could be due to a variety of reasons, such as: 

• Discrepancies between the income reported on your return and the information reported to the IRS by third parties (e.g., employers, financial institutions). 

• Questions about deductions or credits you have claimed. 

• Other issues identified during the examination process. 

The letter signifies that the examination phase is complete, and the IRS is now proposing a formal change to your tax account. 

What's Inside the Letter? 

Letter 525 is accompanied by a crucial document: Form 4549, Report of Income Tax Examination Changes. This report details the proposed adjustments to your tax return. It will identify the specific items on your return that the examiner is proposing to change and provide an explanation for why these adjustments are being made. 

Form 4549 will show the proposed increase or decrease in your tax liability, including any additional tax, penalties, and interest. It is essential to review this form carefully to understand the basis of the IRS's proposed changes. 

Your Options After Receiving Letter 525 

Upon receiving Letter 525, you have several options. Your choice will depend on whether you agree or disagree with the proposed adjustments. 

If you agree with the proposed changes, you should sign and return the enclosed agreement form, which is typically Form 870, Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and Acceptance of Overassessment. By signing this form, you are agreeing to the assessment of the additional tax and waiving your right to appeal the matter further. 

If you disagree with the proposed adjustments, you have the right to appeal. You must submit a formal written protest to the IRS office that sent you the letter within the 30-day period. Your protest should explain in detail why you disagree with the proposed changes and be supported by relevant documentation and legal arguments. 

If you need more time to prepare your response, you can call the number provided on the letter before the 30-day deadline to request an extension. 

The Appeals Process: What to Expect if You Disagree 

If you disagree with the findings in Letter 525 and submit a timely protest, your case will be forwarded to the IRS Independent Office of Appeals. The appeals process is designed to be an informal proceeding to resolve tax disputes without litigation. 

Here's a general overview of the process: 

1. Submit a Formal Protest: For proposed adjustments over $25,000, a formal written protest is required. For amounts of $25,000 or less, you can make a small case request, possibly using Form 12203, Request for Appeals Review. 

2. Informal Conference: You may request an informal conference with the examiner's manager before the 30-day deadline. If you still disagree, you can proceed to the Office of Appeals. 

3. Appeals Conference: An appeals officer will review your case and your protest. You will have the opportunity to have a conference with the appeals officer to discuss your case and negotiate a settlement. 

   
   

What Happens if You Don't Respond? 

Ignoring Letter 525 is not advisable. If you do not respond within the 30-day period, the IRS will assume you do not agree with the proposed changes and will proceed to the next step. This typically involves issuing a Notice of Deficiency, also known as a "90-day letter." 

• For mail audits, this will be Letter 3219. 

• For in-person audits, this will be Letter 531. 

This statutory notice gives you 90 days (150 days if you are outside the United States) to file a petition with the U.S. Tax Court if you wish to dispute the proposed deficiency without first paying the tax. If you do not petition the Tax Court within the 90-day period, the IRS will assess the tax and send you a bill. 

Conclusion 

IRS Letter 525 is a significant notice that marks a critical juncture in an IRS audit. It provides you with the opportunity to understand and respond to the IRS' proposed changes to your tax return. Whether you agree or disagree with the findings, a timely and well-informed response is essential. Understanding your rights and the procedures involved can help you navigate this process effectively and achieve a fair resolution. 

To learn more about how to fix your IRS issues, click the link to watch the free video, The Ultimate Guide to Solving Your IRS Tax Problems: 

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